Discussion of on the use of intra-industry information to improve earnings forecasts
Baber, Kim and Kumar unite and extend research on analysts' earnings forecasts (and their revisions) with research on the existence and magnitude of intra-industry information transfers. Specifically, they test whether analysts' forecast revisions appear to be affected by information transfers, where the information being transferred is contained in earnings announcements made by firms in the same industry as the firm whose earnings forecast is being revised. Their investigation of whether information transfers enhance forecast accuracy and precision expands on prior studies which generally focus on the economic effects of transfers on returns and prices. BKK's results are important to those who value forecast accuracy and precision, even if prior research (and extensions of their own tests) show no information transfers in stock prices. In sum, BKK's results contribute both to our understanding of the information transfer literature and to our knowledge of the determinants of analysts' earnings forecasts. In addition to considering the sensitivity of the predictions and results to more timely and broader sources of analyst forecasts and to the assumption of sequence anticipation, future work in this area could probe the extent of information transfer in other contexts. © Blackwell Publishers Ltd. 1999.
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